Wednesday, May 16, 2012

Under a freshly-forged
settlement agreement, almost two years of parry-and-thrust antitrust litigation
filed against Pacific Seafood Group and Ocean Gold Seafoods would likely end
with the processors paying attorney fees, but not one penny in damages. The
companies would also remain intact, avoiding the breakup requested in the
complaint.

The companies must, however,
chart a course toward making prices and markets more equitable and competitive.

If US District Court Judge
Owen Panner approves the agreement during a hearing scheduled for May 21 in
Eugene, Oregon, company officials would face the task of enacting several
“pro-competitive” practices outlined in the settlement.

Fishermen who filed the
complaint said those practices – if followed – would go a long way toward
alleviating the circumstances that led to the legal action.

The initial complaint –
filed in June 2010 by Portland-based attorney Mike Haglund for Brookings-based
fishermen Lloyd Whaley and Todd Whaley and other “similarly situated fishermen
and fishing vessel owners” – alleged monopolization of the Dungeness crab,
Oregon coldwater (pink) shrimp, groundfish and whiting seafood markets along
the West Coast by Pacific and its owner Frank Dulcich.

Prices paid to fishermen are
the central issue. The complaint alleged that Pacific uses its market share of
50 to 70 percent in each of those four critical fisheries and coordinates with
other processors to drive down those prices, thus violating federal antitrust
laws. It alleges that PSG uses vertically integrated acquisitions, multiple
tactics to set and enforce ex-vessel prices, exclusive dealing and tying
arrangements, restrictions on output, “theft of seafood commodities” from
fishermen, “fraudulent representations” to public agencies, and “miscellaneous
dirty tricks.”

During the discovery
process, Pacific affiliate Ocean Gold was named as a co-defendant.

The lawsuit requested a trial
by jury, and asked the court, among other things, to declare Pacific’s conduct
illegal and award the fishermen and fishing vessel owners a class judgment for
damages. Judge Panner granted the class action motion in February.

The complaint went through four
iterations, including a July 2011 re-filing that added Newport-based pink
shrimp fisherman Jeff Boardman, Brookings-based fisherman Brian Nolte and
Dynamik Fisheries, Inc. and Miss Sarah LLC as plaintiffs. It also narrowed the
scope of the proposed class by dropping the Dungeness crab market, coastal
areas south of Fort Bragg, Calif., and crew members who receive salaries rather
than a percentage of proceeds.

Both sides appeared ready to
go full speed ahead into a July courtroom showdown, but after intense
negotiations mediated by US District Court Judge Michael R. Hogan, the
fishermen agreed to drop their damages claims in exchange for a package of
measures they say are designed to strengthen the West Coast fishing industry,
make processing and marketing more transparent and competitive, and to hold
Pacific and Ocean Gold accountable.

Fair Prices and Following Markets
Haglund said the five-year agreement was a trade-off between trying to recover
damages for past actions and focusing on actions to improve the situation now.
Sailing into the stormy seas of a trial would prolong the matter by as much as
three years or longer, followed by appeals. Haglund said the number of
unsettled questions concerning antitrust law that the complaint dredged up
could eventually have carried the legal action into the US Supreme Court.

While Newport-based Oregon
pink shrimp fisherman Jeff Boardman – who signed onto the complaint in July
2011 and participated in the settlement negotiation process – has “mixed
emotions” about the agreement, he said it “should benefit the fleet in the long
run.”

“It was never really about
the money, anyway,” Boardman added. “It was about making the situation better
for the fleet.”

Specifically, they focused
on boosting to-the-boat prices for fishermen by breaking the processors’
stranglehold on the markets and what fishermen say is the companies’ ability to
unfairly suppress those prices.

Company attorneys led by
Portland-based Michael Esler never contested the notion that the companies have
large market shares in the whiting, groundfish, Dungeness crab and pink shrimp
fisheries. But they did note that prices in a number of fisheries have actually
gone up due to their market clout, based on their ability to “reliably deliver”
huge quantities of fresh fish and open up new markets throughout the world.
They say the complaint lacked sufficient evidence to prove antitrust
violations, which required the fishermen to show that the companies used their
powerful market positions to unfairly hold down prices or otherwise harm
fishermen and competing processors.

Boardman fished for Newport
Shrimp and Clearwater before PSG took over the processing facility on Newport’s
Bayfront, remaining for a time afterward until he decided things weren’t going
in the best direction for the fishermen.

“I tend to be loyal, but I
felt they weren’t loyal to me,” he noted.

Boardman and others say
wholesale and retail prices have risen, but to-the-boat prices have fluctuated
considerably and most often unfavorably for the fishermen. Other fishermen say
nothing is wrong, that ex-vessel prices reflect market fluctuations and they
are satisfied with the status quo.

Coming to Terms
While Pacific and Ocean Gold escaped a potential $70 million-plus judgment had
they eventually lost the case, they will reportedly pay as much $2.6 million in
attorney fees, and must adhere to multiple terms written into the agreement.

Under the agreement, a
10-year contract between Pacific and Ocean Gold will not renew in 2016, and
within 10 days of the settlement’s approval, sections of the contract dealing
with setting fish prices will become void. The fishermen alleged that the
contract allowed the companies to use collective buying power to fix and hold
down prices paid to fishermen. Nothing prevents the companies from inking a new
contract, but if it requires Pacific to “act as the exclusive marketer” of any
OGS seafood product, Judge Hogan would have to approve it.

Haglund called this “one of
the most significant features” of the agreement, noting that if a new contract
between Pacific and Ocean Gold were considered anti-competitive, Hogan couldn’t
and wouldn’t approve it.

This opens the hatch for
Ocean Gold to become a major independent competing processor four years from
now. Also, Haglund said market forces emerging from the rise of the middle
class in Asia and China could foster additional competition by bringing new
processors to the West Coast.

The agreement also
eliminates potential conflicts of interest involving fishermen’s cooperatives in
Oregon, Washington and California.

The lawsuit claimed a
Pacific employee in Charleston also ran a fish co-op there, which the fishermen
called a serious conflict of interest. The processors agreed their employees
could no longer serve as co-op managers. Pacific and Ocean Gold vessels and
their affiliates may still participate in fishermen’s cooperatives,
associations, joint purchasing and/or harvest and risk pools “authorized or
permitted by court order, statute, administrative rule, order, law or other
regulatory action.” They may also enter purchase agreements with cooperatives,
and regularly meet with cooperative members “to discuss industry concerns,
including harvesting, bycatch reduction and scheduling.”

Pacific also agreed to sell
a piece of fallow waterfront property in Crescent City, California at fair
market value to anyone who would use the location as a seafood processing
plant, unless Pacific has “reasonable business purpose” in keeping the property
for current or future needs.

Pacific and Ocean Gold,
which operate the largest processing plants that turn fish waste into fishmeal,
must now accept “on commercially reasonable terms” weighbacks and scrap fish
from new and existing processors if the companies’ plants have the capacity “to
reasonably handle scrap from other processors.” Company attorneys said both
companies were already purchasing from competitors, refuting the lawsuit
allegation that, as the only buyers in certain ports, Pacific and Ocean Gold
were eliminating competition by refusing to buy product from competitors.

Both companies agreed to pay
ex-vessel prices “negotiated with fishermen” for all groundfish and whiting
processed at their plants, except when “an individual fishing vessel enters
into an agreement under which the fishing vessel is harvesting species
allocated to quota owned by the processor or otherwise agreed between the
parties.” They also agreed to continue the “open door” practice of allowing
captains or vessel owners to observe weighing and grading of catches “whenever
and wherever reasonable under the circumstances.”

For the 2013 fishing
seasons, Pacific and Ocean gold agreed to “separately negotiate in good faith”
with fishermen for “alternative pricing approaches” for onshore whiting,
groundfish and pink shrimp.

Both companies also agreed
to buy from the fishermen represented in the lawsuit, including those who sued,
for at least the next 10 years. It did have two stipulations: the vessel owners
or operators must provide 90 days notice, and the companies “will not have to
deal directly” with Lloyd Whaley.

In the Pink
Pacific also agreed to not concentrate its large fleet of pink shrimp fishing
vessels at any one of its processing plants, and agreed to not send out any
processor-owned vessel before they reach an agreement with fishermen on
ex-vessel prices or other vessels have started to fish. Pacific and Ocean Gold
also agreed – if fellow processors Bornstein Seafoods and Hallmark Fisheries
would do the same – to provide their average pink shrimp wholesale prices to
commodity market news reporting service Urner Barry, allowing fishermen access
to that information to use in price negotiations.

Both companies also agreed
to purchase and pay for pink shrimp on a peel-count basis, and to standardize
ice sampling procedures at all plants.

Oversight
Judge Hogan inserted a “czar rule” in the agreement, which gives the judge
final say in such matters, including whether or not to grant a five-year
extension when the initial five-year time frame expires. Boardman, who now
delivers his catches to Charleston-based processor Hallmark Fisheries, called
the czar rule “one of the best things we could get,” but Hogan’s refusal to
include a cap on how many vessels Pacific could own disappointed him.

Overall, Boardman considered
the agreement “the right thing to do.”

According to the agreement,
the fishermen acknowledged that some of their concerns arose “out of mistrust
and a lack of understanding” between them and the processors, who “have made
substantial investments that contributed to the development of international
markets for West Coast seafood products that benefit the industry.”

The processors, in turn,
acknowledged that the measures outlined in the settlement would “reduce
fleet-processor conflict over ex-vessel prices, increase transparency and
improve competitiveness of the West Coast fishing industry.”

Those fishermen who were
caught up in the class action net and have issues regarding the terms of the
settlement had until May 7 to file any objections and prepare for the May 21
hearing before Judge Panner, who granted the class action motion in February.
Haglund said they would mail out or publish court-ordered notices for the
estimated 1,200 to 1,500 individuals encompassed by the class of commercial
fishermen and fishing vessel owners who delivered trawl-caught groundfish,
whiting or pink shrimp to seafood processors on the West Coast from Ft. Bragg,
Calif., to the Washington-Canada border at any time between June 21, 2006 and
Dec. 31, 2011.

Hogan commended both sides
for their willingness to “make huge compromises” to reach an accord.

“This case could have gone
on for years, including appeals,” he said. “The fishermen and the processors,
especially Pacific Seafood Group, are to be commended for taking a
statesmanlike approach to resolving a complicated case. These parties focused
on how to ensure the West Coast fishing industry for the future. Competition in
this industry benefits both fishermen and processors, but also consumers over
the long run.”

Ironically, Boardman said
fishermen were still mired in price negotiations well past the season’s April 1
opening, although some vessels had already ventured out. Shrimpers wanted what
Boardman deemed as “a modest 10 percent increase over last year’s prices, which
he said “would be fair on both ends,” especially when market indicators point
to a 20 percent hike in ex-vessel prices as being a fair market price.

The 2011 season started late
because shrimpers and processors were haggling over opening prices.

Boardman said he and other
fishermen were looking into creating a committee of representatives from
different fishing associations along the coast “to look at wholesale prices and
market access.” Such a committee, he noted, could help negotiate prices and
“put out a report card” on different fisheries and processors.

2014 cover

Founded in 1945, Fishermen's News is the oldest commercial fishing publication on the Pacific Coast, and the only independently owned commercial fishing publication in the market.
We focus on small business issues as they affect the independent commercial fisherman, and are uniquely tailored to the individual commercial vessel owner.
Only Fishermen's News consistently and steadfastly advocates on behalf of these independent commercial fishermen.